Zhou to Remain China’s Central Bank Chief, Reuters Reports

Feb. 21 (Bloomberg) -- China will probably retain Zhou
Xiaochuan next month as central bank governor, even after he
reached retirement age and left the ruling Communist Party’s
Central Committee, Reuters reported yesterday.

Zhou, who turned 65 last month, will probably become a vice
chairman of the legislature’s top advisory body, giving him a
rank exempting him from mandatory retirement, Reuters said,
citing two people with ties to the party leadership and two
people in the financial industry who weren’t identified. China
is keeping Zhou on for an indefinite period to help enact policy
changes including loosening control over the yuan, Reuters said.

The Communist Party’s omission of Zhou from its new 205-member Central Committee in November and a Feb. 2 profile by the
official China Securities Journal that said he’d step down in
March had signaled he’d be leaving as part of a once-a-decade
leadership change. Zhou, China’s longest serving PBOC chief, led
the bank during the global financial crisis and oversaw
exchange-rate reforms in July 2005 that paved the way for the
yuan to rise about 25 percent against the U.S. dollar.

“Continuity is good in this case,” Shen Jianguang, chief
Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, said
in a telephone interview. Zhou will “continue to push for much-needed reforms” in the financial system and the
internationalization of the currency, he said.

Changes that took place during Zhou’s tenure included a
loosening of controls over the use of the yuan for international
trade and investment purposes, and giving banks more freedom to
set lending and deposit rates.

The PBOC didn’t immediately respond to a faxed request from
Bloomberg News yesterday for comment on the Reuters report.

Leadership Change

Next month’s meeting of China’s legislature will see
leaders complete a transition that began with Xi Jinping
replacing Hu Jintao as head of the Communist Party in November.
That puts Xi in line to also take over from Hu as president at
the March meetings. Li Keqiang, who was named the party’s
second-highest official, is set to replace Wen Jiabao as
premier.

Zhou, at a Nov. 11 press briefing held in Beijing as part
of the party congress that appointed Xi general secretary, said
“when it comes to retirement, you have to retire when you reach
an old age.” An October report by the Chinese Business News
about the publication of a book by Zhou had also fueled
speculation that he would be leaving the central bank.

Xiao Gang, chairman of Bank of China Ltd., will be
appointed party secretary of the People’s Bank of China, setting
him up to succeed Zhou eventually, Reuters reported.

Loosening Controls

Zhou in December spoke of limits on reform, saying China
will keep controls on short-term capital flows even if it
implements deeper convertibility of the yuan.

The PBOC governor must work within the confines of a system
that doesn’t afford the central bank the political independence
of counterparts such as the U.S. Federal Reserve.

Retaining Zhou “will provide policy continuity,
consistency, and confidence to China’s financial system,” said
Liu Li-Gang, head of Greater China economics for Australia & New
Zealand Banking Group Ltd. in Hong Kong. “It is hopeful that he
can be instrumental in upgrading China’s financial system to the
next level.